William Gates Sr.—whose son is Microsoft founder Bill Gates—joins with co-author Chuck Collins to argue that the wealthiest among us have an obligation to pay their fair share.
In the last several years, Congress has debated whether to eliminate the federal estate tax—or "death tax"—our nation's only levy on accumulated wealth. The paltry debate over elimination of the tax has not grappled adequately with the negative consequences of repealing the estate tax.
One hundred years ago, during the first Gilded Age, we had a rigorous debate about the dangers of concentrated wealth in a democracy. The debate over the estate tax goes to the heart of the question of "what kind of country do we want to become" and ethical questions about society's claim upon the accumulated fortunes of the wealthy.
Ten years ago, a number of wealthy families—including the heirs to the Mars and Gallo fortunes—began bankrolling a campaign for wholesale repeal of the tax. Instead of revealing the true beneficiaries of repeal—households in the top 1 percent of wealth holders—they put forward a media campaign representing farmers and small-business owners as injured parties to the tax. Much of this mythmaking, however, has obscured the dangerous impact of eliminating the tax.
Proponents of repeal argue that the estate tax is un-American, that it punishes success and discourages parents from passing on wealth and businesses to their children. They successfully included elimination of the estate tax in President Bush's Tax Relief Act of 2001, through which the estate tax would gradually be phased out and then repealed for one year in 2010. Now repeal advocates are pressing to permanently eliminate the estate tax.
WHY PRESERVE the estate tax? The tax generates substantial revenue to pay for government. These funds are raised from those most able to pay—households in the richest 1 percent. Between now and 2009, the amount of wealth exempted prior to paying the tax will rise to $3.5 million. Based on recent IRS data, that means that only about 6,000 estates a year will pay the tax, with an average estate valued at more than $21 million. Eliminating the revenue from the estate tax will shift the tax burden off those most able to pay onto everyone else or lead to cuts in services for those most in need.
Many states have state-level inheritance or estate taxes that are linked to the federal estate tax. Repeal of the federal estate tax may lead to a severe drop in revenue for states—an estimated $5 billion—at a time when they can ill afford the loss. Almost every state in the country is grappling with severe budget deficits and many are cutting lifeline social programs for low- and middle-income people.
The estate tax serves as a catalyst for charitable giving. Many people give to their religious congregation, community organizations, and other charities regardless of the tax advantages. But evidence suggests the estate tax encourages wealthy households to give even more, particularly households with wealth higher than $20 million. Bequests motivated by the estate tax go toward creation or capitalization of foundations, medical and research organizations, and religious organizations. A U.S. Treasury Department report estimates that charitable giving will drop by $6 billion a year without an estate tax incentive.
The estate tax is part of our country's historic response to excessive inequality. The American experiment is rooted in a suspicion of concentrated wealth and power and in the rejection of aristocracy. The estate tax was established in 1916 as a populist response to the excesses of the Gilded Age. At a time when the gap between the very rich and everyone else is once again at historic levels, it seems un-American to eliminate the one tax that discourages the build-up of dynastic wealth holdings.
SOCIETY HAS AN enormous claim upon the fortunes of the wealthy. This is rooted not only in most religious traditions, but also in an honest accounting of society's substantial investment in creating the fertile ground for wealth-creation.
One of the dominant myths of our time is the "great man" theory of wealth creation—the notion that one's individual success is rooted entirely in one's own effort. You can hear these sentiments in debates over taxes: "I made this money on my own" and "The government has no right to my money." It is important to affirm and celebrate the role of the individual in the creation of wealth and successful enterprises. One significant reason that some people accumulate great wealth is through their hard work, creativity, tenacity, and sacrifice. Individuals do make a difference.
Yet it is equally important to acknowledge the role of a wide variety of influential factors such as luck, privilege, other people's efforts, and society's investment in the creation of individual wealth. The notion of a "self-made millionaire" or "I made this money without any help" is hubris. It is an example of extreme individualism that runs counter to ethical and religious traditions.
Judaism, Christianity, and Islam all affirm the right of individual ownership and private property, but there are moral limits imposed on absolute private ownership of wealth and property. Each tradition affirms that we are not individuals alone but exist in community—a community that makes claims upon us. The notion that "it is all mine" is a violation of these teachings and traditions.
In the Jewish tradition of tzedakah, owners of property are required to care for those in need. This is not a matter of charity or choice—it is an obligation. Individual wealth is provided by God, observes business ethicist Meir Tamari, and it is not meant only for the needs and wants of the private owner but is also meant to be used to satisfy the needs of the poor. Tamari believes society acquires a property right in the wealth of the individual to provide, through compulsory acts of taxation, the social and charitable needs of its members.
The moral basis of welcoming and providing for the stranger is in the Hebrew people's experience of being strangers and slaves in the land of Egypt. This memory acknowledges that the Hebrew people would still be oppressed and in Egypt but for the grace of God. The notion "this is all mine" is inconsistent with Jewish law and may be the sin related to the mark of the "people of Sodom." Tamari observes, "The Sodomite view of absolute private property rejects any obligations to assist others, which is contrary to the Jewish concept of limited private-property rights."
THE MUSLIM APPROACH to charity includes zakat, a compulsory component, and sadaqa, voluntary giving. Zakat is rooted in the individual's obligation as a member of a community. The prophet Muhammad wrote, "Like the organs of the body, if one suffers then all others rally in response." Joseph Singer, author of The Edges of the Field: Lessons on the Obligations of Ownership, notes that zakat "represents the unbreakable bond between members of the community." Since all wealth is owned by God and held by humans in trust, owners of property are not allowed to consider their interests alone.
This notion is similar to the principle of stewardship in the Christian tradition. Riches are granted as a gift from God and humans are expected to be responsible stewards of this wealth, including sharing it with those less fortunate. Author and Harvard professor Peter J. Gomes notes, "Upon those who have wealth, there is a burden of responsibility to use it wisely and not only for themselves." The wealthy must be "generous in proportion to their wealth" because "to whom much is given much is expected."
The Catholic bishops have reiterated the notion that there is a "social mortgage on capital"—another way to express society's claim. They affirm the importance of private property and ownership as opposed to statist or collectivist approaches. Yet they balance fundamental American aspirations of freedom and obligation with society's claim on capital.
Support of private ownership does not mean that anyone has the right to unlimited accumulation of wealth. Private property does not constitute for anyone an absolute or unconditioned right. No one is justified in keeping for her exclusive use what she does not need, when others lack necessities. In the American bishops' pastoral Economic Justice for All, they noted, "[Owners and managers] have benefited from the work of many others and from the local communities that support their endeavors." Pope John Paul II, in the encyclical On Human Work, wrote that capital "is the result of work and bears the signs of human labor." Those who have labored hold a claim to accumulated wealth and capital.
AS AMERICANS we are more inclined to enshrine individual success and undervalue these other components in wealth building. But for the good of the country, we need to better account for the true origins of wealth and success.
Consider the many components of the social framework that enables great wealth to be built in the United States: a patent system, enforceable contracts, open courts, property ownership records, protection against crime and external threats, public education, and so on. Even the stock market is a form of society-created wealth, providing liquidity to enterprises. When faith in the system is shaken, as in the last year, it is clear what happens to individual wealth.
This is a matter that goes beyond the discussion of the estate tax. We must recognize that society has a legitimate claim upon the wealth of the wealthy. It is not simply a matter of charitable giving to institutions that have made a difference to us, such as schools and libraries. It is also an obligation to pay taxes, to pay for the public institutions that foster equality of opportunity, and to give others the opportunities that we've had. It goes to the heart of how we think about ourselves, as individuals and as a society.
Society's claim on individual accumulated wealth is a fundamentally American notion, rooted in recognition of society's direct and indirect investment in an individual's success. In other words, we didn't get here on our own.
William Gates Sr. is co-chair of the Bill and Melinda Gates Foundation. Chuck Collins is co-founder of United for a Fair Economy and Responsible Wealth. They are co-authors of Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes (Beacon Press, January 2003). To learn more about the estate tax, contact the Campaign to Preserve the Estate Tax, United for a Fair Economy, 37 Temple Place, 2nd Floor, Boston, MA 02111; www.responsiblewealth.org.
Bad for Democracy
"We believe that permanent repeal of the estate tax would be bad for our democracy, our economy, and our society. Repealing the estate tax, a constructive part of our tax structure for 85 years, would leave an unfortunate legacy for America's future generations."
—from "A Call to Preserve the Estate Tax," a 2001 statement signed by more than 1,200 prominent business leaders and high-net-worth individuals—people who would likely pay the tax.